Question

Walter, a single taxpayer, purchased a limited partnership interest in a tax shelter in 1993. He also acquired a rental house in 2019, which he actively manages. During 2019, Walter's share of the partnership's losses was $30,000, and his rental house generated $20,000 in losses. Walter's modified adjusted gross income before passive losses is $130,000.

a. Calculate the amount of Walter's allowable deduction for rental house activities for 2017.
b. Calculate the amount of Walter's allowable deduction for the partnership losses for 2017.
c. What may be done with the unused losses, if anything?

Answer 1

a. maximum allowable deduction = $25,000 - [50% x ($130,000 - $100,000)] = $25,000 - (50% x 30,000) = $25,000 - $15,000 = $10,000

b. partnerships passive losses must be deducted from passive gains, since there are no passive gains, there are no deductions = $0

c. passive losses can be carried forward for future deductions against passive gains